Captive Company

Customer service, quality control, employee morale -- business is a whole different ball game when you're running a prison for profit

It's unusual to find a company that negotiates with clients about the use of deadly force. But that's just what I found at Corrections Corporation of America, which runs jails. CCA is in the vanguard of the movement to turn more public operations over to private industry -- especially difficult here, jails being notoriously costly and poorly run.

E.L.

ROBERT G. ("BUTCH") BRITTON LOOKS a little out of place. He is standing now before the five commissioners who run Jackson County, situated just beyond the Alabama and Georgia borders, had only 42,000 people. In the county courthouse in Marianna, a vending machine still dispenses Coke in bottles and people still put the empties in the adjacent metal rack. A sign on the courthouse door asks visitors to "please" leave their guns and knives in their cars.

Britton, a tall man with silver-gray hair, is wearing what may be the only pin-striped suit within a 30-mile radius. He looks like an insurance salesman, but there's only prison in his background -- jobs running entire corrections systems in Texas, Arkansas, and Alabama -- and what he's pitching today is a solution to the county's jail troubles. Like most of Florida's counties, Jackson County was sued a few years ago by the state, charged with having an unsafe, overcrowded jail. The commissioners now realize the jail must be replaced. Britton is here representing Nashville's Corrections Corporation of America (CCA), the country's largest and most successful operator of private jails.

His pitch is slick, direct. First he shows TV news clips about CCA. He knows which buttons to push. He starts his talk by telling the story of Bay County, due south -- how its jail too had been overcrowded, how its commissioners "had several very serious lawsuits filed personally against them for conditions in the jail." CCA cleaned up Bay County's old jail and added a new annex; soon afterward, the state dropped its suits.

Jackson County would not have to worry about overcrowding ever again, Britton promises. CCA would build a new state-of-the-art jail, and would do so with future expansion in mind. As the jail population grew, CCA would add cell blocks, financing them itself. The county would pay for this over time, in the per diem charges levied for each inmate. Britton promises, too, that the commissioners would no longer have to fear personal loss from jail-related lawsuits. "If you do get sued, we'll represent you," he says. "And if there are any awards made, we pay 'em."

Commissioner S. Durelle Johnson, his voice gruff, asks Britton what Bay County pays for all this, per day, for each inmate. Johnson seems not to believe the answer.

"No other costs?" he asks.

"No. That's it."

"What about liability, and the facilities?"

"Every cost," Britton says.

"What about the annex?"

"They're both the same: $29.81."

Johnson persists. "Total cost?"

"Total," Britton says. Britton does not, however, mention some of the other things that went on in Bay County before CCA took over its jail -- the threats, for example, that were aimed at two pro-CCA commissioners. Or the way supporters of the local sheriff later voted one of them out of office. Or how the sheriff, when it became clear he had lost his jail for good, hauled away all his inventory, including telephone books, food, leftover clothing, even some desks. As one Bay County commissioner recalls, "The sheriff pitched an absolute fit."

The challenges faced each day by CCA would likely chill the souls of garden-variety entrepreneurs. Clearly, every new venture risks failure. But CCA risks riot, murder, mayhem. At any one moment, its inmate population includes kids who stole cars, adults who took lives. If its products fail, dangerous people escape. CCA contracts cover the use of deadly force. The company's shopping list includes razor wire and billy clubs.

All this is bad enough. But CCA also faces assault from outside its fences. When McDonald's Corp. decides to sell a new kind of hamburger, no one questions its moral, philosophical, or constitutional right to do so. CCA, however, meets such opposition every time it tries to win a contract. It has battled unions, civil-rights watchdogs, and corrections bureaucracies -- perhaps the most entrenched bureaucracies of all. "The idea is so foreign to most people's experience," says Thomas W. Beasley, who conceived CCA and is now its chairman. "Their first impulse is to say only the government can do it, because only the government's ever done it. But their second reaction is that the government can't do anything very well." At that point, he says, "you just sell it like you were selling cars or real estate or hamburgers."

CCA contends it can run jails not only cheaper than government can, but better. It tries to mine its profits from that nether zone of government waste and inefficiency, in which red tape ensnares even simple decisions. Freed from bureaucratic restraints, the company can act faster than public agencies in everything from construction to buying shampoo. It devises employee incentives and designs more efficient, less labor-intensive jails. It won't pursue contracts in any area heavily dominated by organized labor. Employees share in the profits of the company through an employee stock ownership plan. The formula for success doesn't take a rocket scientist to figure out, says Doctor R. ("Doc") Crants, president and a cofounder. Every employee comes to work on time and every employee works his eight hours, or he's history. "It's so simple, it's shocking," says Crants.

This year, that formula may produce CCA's first profit. After five years of losses, albeit declining ones, CCA expects to begin booking quarterly net income in the fourth quarter. (CCA, public since 1986, lost $1.9 million last year on $17 million in revenues.) The company runs nine jails, work camps, and juvenile centers in four states, and is a partner in several European joint ventures. How CCA reached this point is a story for these times. The capitalist world seems giddy with the idea that private industry can surpass government in almost any pursuit. In Great Britain, Prime Minister Margaret Thatcher's government has sold off many state-owned industries, including Jaguar and British Airways. Last March, the President's Commission on Privatization urged the U.S. government to shed a broad array of public operations, including administration of prisons.

In this country, in fact, prisons are already an industry, with a dozen companies and partnerships competing for contracts. Some offer real competition, such as Pricor Inc., also in Nashville, and a joint venture between Bechtel Corp. and Wackenhut Services Inc. When Bay County put out its request for proposals, 11 companies responded; the county, however, took only 4 of them seriously, settling on CCA because its officers had the most prison experience.

No field better illustrates the method, risk, and potential reward of privatization than corrections. "I love it," says Tom Beasley, after attending a conference on prison overcrowding. "I just love it. We're the best thing that ever happened to corrections since they stopped beating 'em."

CCA became a company on Valentine's Day, 1983, the day Tom Beasley and Doc Crants took their plan for the company to the offices of Massey Burch Investment Group, a prestigious venture capital firm in Nashville.

Beasley and Crants, best friends since rooming together at West Point, had spent a year building a plan around Beasley's notion that private industry could help solve the nation's prison troubles. By then, Terrell Don Hutto, the third founder, had agreed to join. Each brought a talent necessary for the success of the idea: Beasley, a lawyer and chairman of the Tennessee Republican Party until 1981, brought the political skills and Crants, a Harvard-trained lawyer and M.B.A., the financial. Hutto, a former director of two state prison systems, delivered the corrections know-how. He also brought instant credibility: he'd just been named president-elect of the American Correctional Association, a post that could give CCA a foot in the door of any slammer in the country.

At Massey Burch, venture capitalist Lucius Burch was scouting for new businesses to carve from the public sector. The firm's appetite had been whetted by its success with Hospital Corporation of America, which runs private hospitals. Burch, in fact, had begun researching prisons long before Beasley and Crants walked through the door. He had simply lacked the team to turn the idea into a company. Fifteen minutes into the meeting, on only a handshake, Burch committed $500,000 to the venture.

Things continued going smoothly for CCA. Its business plan forecast that the company would get its first contract in about two years. Yet within six months, CCA signed two agreements, modest proposals that drew little opposition. Reactions were more intense a year later, however, when CCA offered to take over the entire Tennessee prison system. The plan was bold, innovative, and fresh; too bold, in fact. It threatened too many different constituencies -- labor, the corrections bureaucracy, legislators. In a 119-page proposal, the three founders said they would upgrade and run the Tennessee system for $210 million a year in management fees, $15 million less than the state had budgeted. The plan incensed organized labor. The American Federation of State, County, and Municipal Employees (AFSCME), CCA's nemesis, rallied to the cause.

The plan failed, but Beasley stands behind it even now. "This thing, the simplicity of it, is what drives you crazy," he says, clearly still frustrated by the memory. "There's nothing horribly complicated about all this. You write a business plan looking at the marketplace and the demographic data. . . . That's exactly the way we proceeded. Everybody thought that was so horribly unorthodox -- when it was so logical and sensible."

Not for CCA's enemies. Last year, the National Sheriffs' Association flatly opposed privatization. The Florida Sheriffs Association, in the wake of CCA's winning its Bay County contract, muscled a bill through the state legislature that made it much harder for county commissions to approve going private. In an AFSCME brochure, an attorney writes, "Are we really so deeply in the thrall of private enterprise that we are prepared to parcel out opportunities to some of our citizens to reap a profit from the punishment of others?"

Tom Beasley bristles at this kind of argument. The fundamental question, he says, is who can do it better? He describes the last legal case he handled in private practice: "I was assigned by the court to defend a guy in the Dickson County [Tennessee] jail who had led the assault by five guys on an 18-year-old inmate. They raped him 35 times from four o'clock on Friday afternoon until Monday morning. . . . There wasn't any doubt in my mind that we could beat the hell out of [the prison's] performance."

The troubles of the nation's prison system may well be CCA's biggest asset. Half the country's state systems are operating wholly or in part under court orders to reduce their prison populations or otherwise improve conditions. In 1985, overcrowding forced 19 states to release nearly 19,000 prisoners. All CCA's senior corrections executives tell stories of delay and waste from their days in the public sector -- in particular, how bidding procedures tied their hands. In Virginia, for example, the state corrections department bought pencils for twice what they cost in the local dime store. "You buy things on low bid, but low bid doesn't mean low price," says Don Hutto, who once ran the Virginia prison system.

In hiring its key managers, CCA insists on heavy-duty prison experience. Such experience is sure to be accompanied by frustration with the ways of public-sector prisons. CCA can offer these red-tape refugees freedom they never had in government -- the simple freedom, say, of buying a floor buffer in a single day. David L. Myers, a CCA vice-president, quit his job as warden of Texas's Eastham Unit in September 1985 to join CCA. He was intrigued by the concept of private jails, and was drawn as well by the good reputations of Don Hutto and Butch Britton. After joining CCA, Myers found he in fact did need to buy a floor buffer. He bought it on the spot, shaving about two months off what the process would have taken in Texas.

CCA can also dangle the prospect of mobility. In state systems, congealed by bureaucracy, promotions come slowly. Seniority may get more consideration than performance. The situation is far worse at the county level. "If you work in the local prison, your chances of being a warden are infinitesimal," says Beasley. "The probability is that 10 years from now you're going to be what you are today, only with more seniority." CCA also offers promotion to jobs in different states. Moreover, it offers promotions to jobs that don't exist in public corrections, such as marketing.

These attractions, though, are clearly of secondary importance to local government officials. What they respond to is trouble. They need lawsuits, court orders, or some other pressing motive before they'll consider so novel and politically treacherous an idea as private corrections. CCA has found that advertising and blind sales calls do little good. Instead, its marketing department waits for prospects to call; the company gets 75 inquiries a week. It politely turns down callers from the Northeast; the company prefers doing business in the southern tier, where unions are weak and a soaring population has caused severe prison overcrowding. Besides, CCA already has jails there to show off to interested officials.

The saga of CCA's Bay County contract shows how vicious the skirmishing can get -- and offers a case study of how the company makes crime pay.

The Bay County Jail, in Panama City, Fla., is an angled, six-story tower that, had it been built a bit farther south, on the sands of Panama City Beach, would look more like a hotel than a jail. Under former sheriff E. LaVelle Pitts, the decade-old jail was anything but a hotel. An inspector found more than 70 violations of state corrections rules. The jail was so overcrowded that inmates slept on floors.

The county commissioners, facing lawsuits by the state and by the family of an inmate who died while in custody, invited CCA to visit. They liked what they heard; the sheriff, his turf now threatened, did not. His supporters campaigned hard to block any takeover of the jail by the private sector. Some amiable townsfolk took to their pickups for late-night drives across the lawn of pro-CCA commissioner John Hutt Jr. He says he got threatening phone calls, but took only three seriously. Someone also proposed blowing up the house of commission chairperson Helen Ingram.

CCA's pitch was compelling, and the price was far better than anything the sheriff himself was proposing. The board of county commissioners voted three to two to take the jail away from the sheriff's office. Vengeful supporters of Pitts voted Ingram out of office.

Just after midnight on October 1, 1985, CCA took over the jail, and quickly moved to assert control. By five a.m. inmate crews were cleaning the floors and walls. The company brought in fresh clothing for the inmates, and fire-retardant mattresses and pillows. By evening, county officials say, the Bay County Jail was a different place.

Walk in there now and the first thing you notice are the floors, gleaming with that hard-wax shine you see only on TV commercials. But CCA's improvements go far deeper. Neighboring police chiefs say CCA has cut booking times at the jail in half, simply by streamlining paperwork. Roger C. Haddix, chief of the Panama City police, says CCA has defused a lot of the traditional cop-prisoner tension.

Under its contract, CCA also had to build a new 200-bed annex to ease the old jail's overcrowding. On November 4, 1985, CCA bought the land for the annex; six months later, inmates were asleep in its beds.

The new jail, with arctic white walls and bright green trim, looks like something you'd see in Silicon Valley. It was designed, as are all the jails CCA builds, to use as little labor as possible -- six guards per shift. A single guard works all the doors that open onto the corridors. Thus, an inmate with permission can travel from one part of the prison to another without an escort. The annex also makes extensive use of surveillance devices. "They had it planned, built, and occupied in six months," says Larry Davis, the county's emergency-management director. "We can't find an architect in six months."

Davis is also the jail contract monitor. He keeps track of how many inmates are kept in the jail and computes how much money CCA should get. Under the Bay County contract, as under all CCA's contracts, the company is paid a per diem rate for each inmate. For the first 310 inmates, Bay County pays CCA $31.01 each per day. The rate drops roughly $10 for the next 20, then plummets to only $7.88 a day for every inmate over 330. It is that last clause that makes Larry Davis practically glow with pride -- at present, Bay County has 400 inmates, a population neither the county nor CCA anticipated. "We're looking at 70 people for $7.88 each," Davis says, grinning. "It's all in the contract."

That's one of the advantages of privatization, he figures: both sides work out the toughest deal possible. The county believes it saved $700,000 in the jail's first year under CCA control. Moreover, CCA began an inmate work program; in one year the county got $600,000 in free labor.

Beasley says the Bay County jail is indeed contributing a profit: "It's not making good money, it's not making enough to justify it to an investor, but it's making money." All the company's facilities are, he says. In 1987, according to CCA's financial results, the company's facilities chipped in $1.3 million of operating profit, double the 1986 amount; marketing costs, headquarters salaries, and other central office costs produced the $1.9-million loss.

The man most responsible for controlling Bay County's costs is Thomas Denny Durbin, the facility administrator. A big man, Durbin is wearing the latest in lawman fashion -- tan slacks, short-sleeved blue shirt, blue blazer, beeper on his belt. He is not your typical middle manager. Durbin spent 17 years with the Texas prison department. County officials say they'd never be able to attract so seasoned a warden on their own.

Durbin runs his jail as if it were a small business that just happens to have killers, rapists, and a few hundred lesser criminals locked up inside. He explains what he does by comparison with the way things were in Texas, in the public sector. Here, for example, inmates get measured portions of food, with the nutritional content calculated by a dietician; in Texas, inmates wasted food in "huge amounts." CCA buys food and supplies in bulk from Nashville at an advantageous price, but each facility buys fresh vegatables, milk, and some meats by haggling with local vendors for the best prices.

But do CCA's employees perform better than the county's? Are they more motivated, more sensitive to costs?

Under Sheriff Pitts, the Bay County Jail punished not only crooks but Pitts's deputies. If a deputy screwed up on the job, he got assigned to the jail. Likewise, guards who started in the jail sought only to get out, to work their way up into the cars-and-guns side of the sherriff's office. This did not do much for employee morale.

At CCA, however, corrections is king. "Now, our officers are number one," says David Myers, Durbin's predecessor in Bay County. "They are what we do."

Durbin looks for people who want to make a career out of corrections. Guards, like managers, are eligible for promotion anywhere in CCA's system. Durbin tries to make every worker pay attention to costs. Each CCA facility offers awards for employee of the month, quarter, and year; workers have received raises as high as 8%, based on performance -- not on whether they happened to be breathing the day the raises were decided. "This is their company," Durbin says. "The money they throw away is theirs."

The system seems to work. Most telling: the sudden, dramatic improvement in the Bayy County Jail was produced not by a whole new cadre of capitalistic workers, but by the old jail's staff, hired by CCA as a condition of the contract. "We didn't do this with new people," says Myers, who directed the transition. "They were the same people, wearing the same socks, the same underwear, living in the same houses." A grand jury evaluating CCA's operation of the Santa Fe County Detention Center found its staff "motivated and enthusiastic," and suggested this was due "to an awareness on their part that they do have a say in the running of the facility."

At CCA's Shelby Training Center, in Memphis, Anthony Tunstall, a former Air Force requisitions manager, runs the center's supply room and rides close herd on his fellow resident supervisors. Tunstall's domain is a large room with open metal shelves containing gym shorts, sweats, shoes, Vidal Sassoon shampoo, deodorant, and other products that make up each new inmate's kit. Cleaning supplies are stacked in shelves behind a wire fence. On Fridays, Tunstall inspects his colleagues' stockpiles to see whether they really need what they say they need, or are simply hoarding. "Friday's my hunting day," he says. "If I'm saving supplies, I'm saving the company money. And that's the name of the game."

Half the game. Tunstall, who's got a broad smile and who is not exactly the kind of tough-guy "screw" you see in the old James Cagney movies, figures the other half involves just being there, in case an inmate needs to talk. "I tell 'em I'm single, all I got at home is three goldfish; I tell 'em they're my 130 sons. You have to love 'em -- that's what it takes."

CCA seems able to run prisons cheaply enough. But can it run them better? The company keeps its jails spotless; the jails it builds are bright and fresh. Routine grand-jury reviews consistently give CCA's jails high marks. And three of the company's facilities have been accredited by the American Correctional Association. The standards are considered difficult to meet -- only 5% of U.S. corrections institutions have been accredited so far. Judge Kenneth A. Turner, juvenile-court judge in Memphis, has called CCA's Shelby Training Center, "the finest juvenile correctional facility in the world."

But prisons are prisons. People die in them, people escape from them. Private enterprise can't turn prisons into fairy castles. Consider CCA's 400-bed Hamilton County Penal Farm and Women's Jail, known as Silverdale, in Chattanooga, where a small riot broke out in 1986. Shaken, CCA's management revamped its security procedures. Early in 1987, an inmate died of hemorrhaging caused by an undiagnosed tubal pregnancy. County investigations cleared CCA of criminal negligence. But in a $100-million suit, the woman's mother has charged CCA and county officials with deliberately causing her daughter's death.

And CCA has its share of personnel problems. When it took over Silverdale in 1984, CCA hired most of the former county employees. Now, only about half remain, says Samuel Jan Brakel, an attorney with the American Bar Foundation, the research arm of the American Bar Association. Morale among some holdovers, he contends, is low. On the other hand, most of the new hires seem enthusiastic. "The ones I spoke to seemed to have a strong sense of mission and solidarity with what the company was trying to do," he says. Brakel notes, however, that in 1985 and 1986 CCA had to fire five of its own hires: one for sleeping in the control tower, one for allegedly dealing drugs, another for being drunk on the job, and two for absenteeism.

Brakel also conducted detailed interviews with Silverdale's inmates, many of whom could compare it with other institutions, and to its days under county management. Some inmates said the prison served too little food, and there were too few opportunities for recreation. Others felt the staff was stretched too thin: "If a fight breaks out, there's no one to stop it." But most gave rave reviews. One inmate told Brakel: "Silverdale is better than any place I've been in."

This kind of talk is likely to irritate John Fuller, of the Florida Sheriffs Association. He thinks CCA's jails may be too nice. He resents the fact, for example, that Bay County inmates watch color TV and have their food brought in on heated trays. "There's something to be said about sleeping on a hard mattress and eating cold food," he says. The jail, he argues, has lost that special something that so terrifies people they stop committing crimes. He suggests that Sheriff Pitt's approach to modern corrections wasn't all bad. "LaVelle Pitts wanted people to suffer when they went into the jail," Fuller says. "He wanted them to say, 'My God, this is not a nice place to be."